Net Worth
Nonsense: What to Include in your Net
Worth Calculations
I used to
sell life insurance. That meant that I
sat at a lot of people’s dining room table helping them figure out their net
worth. I used some tools that were
provided to me by the insurance company.
Today, there are plenty of net worth calculators on the web for you to
use in your own home.
They all
include boxes for your assets that include: real estate; retirement accounts;
mutual funds; stocks; bonds; savings accounts and a few other asset
classes. Those are all fine and you
should certainly include them.
It’s the
categories for clothes, collectibles, appliances and automobiles that I have a
concern with. It’s entirely possible
that if you add up all of the items on this list, they could easily come to
$50-100K. That’s a fair size chunk of a
lot of people’s net work. I’m not sure
that including them creates an accurate picture of your net worth.
Let’s start
with appliances. If you’re including the
fridge, stove and washer/dryer, you’re most likely going to sell them with your
home, so they’re already included in the valuation of your house/condo. Many people choose not to include their cars
in calculating their net worth because they are a depreciating asset. I choose not to because none of my cars have
ever been worth very much.
Clothes
should never be included. After you buy
them and take them home they are pretty much worthless to anyone except
you. You won’t get very much if you try
and sell them – which is why they wind up at the thrift store. Collectibles and
jewellery never get the prices we paid for them, and what’s worse they make us
think that we have more money than we really do.
I tend to
think of the asset side of the net worth statement as being full of assets that
either appreciate or generate income.
Right now I’m living off of my investments, the calculations of my net
worth are only useful to me if they either make money now or make money in the
future.
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